Political Connections and Technological Change: Evidence from Non-Financial Firms in Pakistan

Abstract

This study investigates the impact of political connections (PC) on technological change (TC) for manufactured firms listed on the Pakistan Stock Exchange (PSX) from 2001 to 2020. We select 221 firms, purely based on the availability of data. In addition political connection data is obtained from the Election Commission of Pakistan (ECP), and a dummy variable is constructed to show whether a firm is politically connected. In this study, dynamic panel data model utilized through the two-steps System GMM method. Empirical findings show that politically connected firms demonstrates significantly higher technological change. However, this positive association can be due to the; by preferential access to domestic credit, government official support due to their interest in the firm, and reduced barriers to importing advanced equipment for the sample non-financial firms. Moreover, the leverage, firm size, ROA, and firm age are negatively associated with TC, while cash flow has a significant positive impact on the TC. These findings highlight both political and financial drivers of technological advancement in Pakistan’s manufacturing sector.

Key words: Technology, Political, Growth

JEL Classification: O14, D27, O40